Tax Questions: Capital Gains Tax on Sale of a Former Holiday Let
If you’re selling a property that until two years ago was an active holiday let, and since, has been for family and friends on occasional weekends, you might be wondering whether your special lower rate of capital gains tax still applies to the gains you make.
Higher rates of Capital Gains Tax apply to taxable gains made on the sale of residential property. 18% and 28% for basic and higher rate taxpayers. An exception to higher capital gains rates applies if a gain relates to business assets qualifying for Business Asset Disposal Relief. For this purpose, furnished properties rented out as holiday accommodation, Furnished Holiday Lets, count as business assets. A property must be let on certain terms however for minimum periods to qualify as an Furnished Holiday Let. Where status applies, gains relating to the sale of a property can qualify for Business Asset Disposal Relief.
The 3 Year Rule
So, if your property ceased to be an Furnished Holiday Let over two years ago, although it might seem that there would be no entitlement to Business Asset Disposal Relief, 10% tax rate, can apply where the property, is sold within three years of the holiday let business ending. This means it can apply to any gain from sale. No adjustment is required to account for periods (in this case two years) where its conditions aren’t met.
If the gain from the sale of the property occurs more than three years after a Furnished Holiday Let business ends, the higher 18% and 28% Capital Gains Tax rates apply to the whole gain. The date a gain arises, is the date the contract is signed by the seller and the buyer, not the completion date.
Furnished Holiday Lets – when they end
Let’s say you own one furnished let qualifying property. The end of your business was the date qualifying conditions for the Furnished Holiday Let ceased to apply. Let’s also say the apartment purchase was in early 2010. Until Spring 2019 it was let on terms that meant it qualified as a Furnished Holiday Let. Since then, let less often and used personally more frequently, so that for more than three years the property has not been a Furnished Holiday Let. Say you recently signed a contract to sell the property which will result in a capital gain. After deducting annual exemption and Capital Gains Tax losses (if any to use) it will be taxable on the gain at 18% or 28% depending on income you have.
Can Business Asset Disposal Relief be extended?
If you owned another property simultaneously which qualified as a Furnished Holiday Let, but you didn’t sell, your property rental business would not have ceased with the sale of the apartment. As the tax rules say all properties let by the same persons are treated as a single rental business, could this bring the gain on the apartment within the Business Asset Disposal Relief time limit? Unfortunately, not. Furnished Holiday Lets are excluded from the usual rule which treats all let properties as part of a single business. You must sell the apartment within three years or lose Business Asset Disposal Relief.
For advice on your business finances including Capital gains Tax on your properties, get in touch with our tax team on Let’s Talk.